2003 (9) TMI 553 - HC - Companies Law

Summary

Issues Involved:
1. Sanction of the scheme of arrangement under sections 391 and 394 of the Companies Act, 1956.
2. Applicability and conflict between sections 391, 394, and 77A of the Companies Act, 1956.
3. Compliance with procedural requirements and fairness of the scheme.
4. Objections by the Registrar of Companies regarding the buy-back of shares.

Issue-wise Detailed Analysis:

1. Sanction of the Scheme of Arrangement:
The petitioner, M/s. TCI Industries Limited, sought the court's sanction for a scheme of arrangement with its shareholders under sections 391 and 394 of the Companies Act, 1956. The scheme was approved by the Board of Directors and subsequently by the shareholders in a meeting held on 7-9-2002. The Chairman's report confirmed unanimous approval by the shareholders present.

2. Applicability and Conflict Between Sections 391, 394, and 77A:
The Registrar of Companies argued that the scheme for cancellation of small-lot equity shares amounted to a buy-back of shares, thus attracting section 77A, which prescribes specific procedures for buy-back. The petitioner contended that sections 391 and 77A are independent and section 77A does not override section 391. The court agreed with the petitioner, citing the Bombay High Court's decision in SEBI v. Sterlite Industries (India) Ltd., which held that section 77A is an enabling provision and does not supplant the court's jurisdiction under sections 391 and 394.

3. Compliance with Procedural Requirements and Fairness of the Scheme:
The court emphasized that its role under sections 391 and 394 is supervisory, not appellate. It must ensure that the statutory procedures are followed, the scheme is fair, just, and reasonable, and not contrary to law or public policy. The court referred to the Supreme Court's principles in Miheer H. Mafatlal v. Mafatlal Industries Ltd., which outline the parameters for sanctioning a scheme. The court found that the scheme met these requirements, as it was unanimously approved by the shareholders and provided for adequate financial provisions for the cancellation of shares.

4. Objections by the Registrar of Companies:
The Registrar's objections were based on the premise that the scheme was essentially a buy-back of shares, requiring compliance with section 77A and SEBI regulations. The petitioner argued that the scheme was investor-friendly and offered a hassle-free exit for small shareholders. The court rejected the Registrar's objections, noting that the scheme had been approved by 100% of the shareholders and that sections 391 and 77A operate in independent fields.

Conclusion:
The court concluded that the proposed scheme of arrangement, having been unanimously approved by the shareholders and meeting all statutory requirements, should be sanctioned. The objections raised by the Registrar of Companies were rejected, and the scheme was sanctioned. The petitioner was directed to file a copy of the order with the Registrar of Companies within 30 days. The company petition was allowed, and no costs were awarded.